Guide

Claims Management Companies – under scrutiny

Paul Staples Paul Staples

The FCA will regulate Claims Management Companies (CMCs) in England, Scotland and Wales from 1 April 2019 and you must register for temporary permissions to continue regulated activities beyond this date.

The deadline is fast approaching, and it is important not to jeopardise or disrupt your business by leaving it to the last minute. Under temporary permissions, you must comply with the FCA’s requirements or risk further scrutiny and potential regulatory censure.

As an intermediary, CMC’s play a vital role in the industry by helping claimants to secure compensation and make informed decisions about their rights. But standards across the sector vary hugely and the move to FCA regulation reflects the need to professionalise the sector.

You need to register for temporary permissions

Obtaining temporary permissions is the first stage towards authorisation. At this stage, the FCA is not assessing how robust your firm is, your risk management processes or your suitability to conduct regulated activities. It will request information regarding your activities and the sector you operate in, which will determine your application period for full authorisation.

If you do not have temporary permissions by 1 April 2019, you must cease all FCA regulated activities relating to claims management.

Applying for FCA authorisation

There is no automatic transferal process between the Claims Management Regulator (CMR) and the FCA. This means you must apply for authorisation independently. If you are already authorised and regulated by the FCA, then you will need to apply for a Variation of Permissions via the FCA’s Connect system.

The windows for applying for authorisation are as follows:

Application period

Who can apply?

1 April 2019 – 31 May 2019

All financial services CMCs that advise claimants, investigate claims or represent claimants (but not those who are solely lead generators)

CMCs being brought into regulation for the first time (eg those operating in Scotland only)

1 June 2019 to 31 July 2019

All other CMCs

Both authorisation deadlines are short, and you must maximise the time available in order to prepare a detailed and complete application.

Achieving authorisation can be time-consuming, resource intensive and highly technical depending on the relative complexity of your business. Our guide to authorisation provides further details on the process and what the regulator is looking for.

Getting to grips with the Client Money regime

Under the FCA, you will be subject to the Client Money (CASS) regime, which includes detailed requirements for the protection of your customers’ money. For applicable CMCs, this is a key area and you may require significant effort to assess and implement the necessary arrangements. The regime has been the subject of continued regulatory scrutiny in recent years and matters of significant concern or non-compliance can prompt the FCA’s direct intervention.

A cultural shift

Moving under FCA regulation is about more than compliance. It’s about fully embracing FCA’s principles. It’s not just about following the letter of the law, but understanding and acknowledging the spirit of it. And this will mean significant cultural change for many firms in the sector.

You must embed a culture of accountability, strong regulatory compliance and good conduct from the top down. In the short term, you should conduct a gap analysis of all FCA requirements against your existing operating model, undertake thematic reviews where you have uncertainty or concern and establish the necessary reporting systems to evidence compliance. You should also plan for higher associated costs in the long term and the potential need for further specialist resource.

Similarly to other regulated firms, the Senior Managers and Certification Regime (SM&CR) will also apply to CMCs. This regime sets out additional rules on professionalism, conduct and governance for firms and individuals performing regulated activities. Importantly, this will make individuals clearly accountable for their actions and decisions. Our guides to the Senior Managers & Certification Regime and culture in the financial services sector offer a good starting point to understand the FCA’s expectations of the wider financial services industry.

For further information on the transition of CMCs to FCA regulation, please contact Paul Staples.

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